Trade of the week: long S&P 500
Explore our US 500 index long trade recommendation as markets find technical support after three weeks of selling. Learn about our entry point, stop loss, targets and market context.
Current trade overview: long position
In the current market environment, a trading opportunity has been identified with the US 500 index. The strategy involves taking a long position based on recent market movements and technical support levels observed in Friday's trading session.
Trade setup
- Entry point: long US 500 at 5710, at current market levels
- Stop loss: set at 5600, positioned below Friday's low to provide some breathing room in case of intraday volatility
- Target: aim for an upside target between 5800 and 5900, capitalising on the expected short-term bounce
Risk-reward ratio
This trade offers a favourable risk-reward ratio, risking 110 points to potentially gain 90 - 190 points. As with all our trades, we're only risking 2% of capital, making it a manageable proposition for those willing to take on the associated risks. However, it is important to note that this is a counter-trend trade, and sometimes the best decision is to refrain from trading.
Market context
The US 500 has experienced three weeks of selling pressure but has recently found support around the 5670 - 5680 level. This key support area coincides with highs from July, August, and September of last year, as well as the October and early November lows.
A bullish hammer formation was observed on Friday, which can signal a potential reversal if triggered by price action moving above Friday's high. Additionally, the CNN Fear and Greed Index has been in "Extreme Fear" territory for the past two weeks, which often serves as a contrary indicator in the short term. The Chicago Board Options Exchange (CBOE) put-call ratio is also at two-year highs, further suggesting the potential for a short-term bounce.
Previous trade outcomes
Our January performance saw four unsuccessful trades where we were stopped out, resulting in a 6% drawdown. However, our discipline paid off in February with successful trades in the EUR/USD and AUD/USD currency pairs. Our long EUR/USD position from 10 February has approached our first upside target near the November high of $1.10, while our long AUD/USD trade has also performed well.
Cautionary note: while this trade presents a structured opportunity, market conditions can change rapidly. Traders are advised to consider their risk tolerance and market outlook before engaging in this trade, particularly as it moves counter to the prevailing long-term trend.
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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